Central Pacific Financial (US:CPF)2020-05-05 20:56Financial Performance - Net income for Q1 2020 was $8.3 million, or $0.29 per diluted share, down from $16.0 million, or $0.55 per diluted share in Q1 2019[243]. - Net interest income for Q1 2020 was $48.0 million, a 5.9% increase from $45.3 million in Q1 2019, driven by loan growth and lower rates on interest-bearing liabilities[293]. - Taxable-equivalent interest income rose to $54.0 million in Q1 2020, up 1.2% from $53.4 million in Q1 2019, primarily due to a $378.6 million increase in average loans[295]. - Interest expense decreased by 25.5% to $6.0 million in Q1 2020 from $8.0 million in Q1 2019, attributed to lower rates on time deposits and borrowings[296]. - The net interest margin improved to 3.43% in Q1 2020, up 9 basis points from 3.34% in Q1 2019[297]. - Other operating income totaled $8.886 million in Q1 2020, a decrease of 23.9% from $11.673 million in Q1 2019, primarily due to a significant drop in mortgage banking income[304]. - Total other operating income for the three months ended March 31, 2020, was $8.9 million, a decrease of $2.8 million, or 23.9%, from $11.7 million in the year-ago quarter[305]. - Total other operating expense increased to $36.2 million, up by $1.9 million, or 5.5%, from $34.3 million in the year-ago quarter, primarily due to higher provisions for off-balance sheet credit exposures and increased salaries[307]. - The efficiency ratio increased to 63.90% for the three months ended March 31, 2020, compared to 60.49% in the year-ago quarter, influenced by a prior year gain on the sale of MasterCard stock[310]. - The company recorded an income tax expense of $2.8 million for the three months ended March 31, 2020, down from $5.1 million in the year-ago quarter, with an effective tax rate of 25.3%[311]. Credit Losses and Provisions - The Company recorded a total credit loss expense of $11.1 million for Q1 2020, significantly impacting operating results[243]. - The allowance for credit losses on loans increased by $3.6 million due to the adoption of ASU 2016-13, impacting retained earnings by $3.2 million[243]. - Provision for credit losses on loans was $9.3 million in Q1 2020, compared to $1.3 million in Q1 2019, reflecting increased risk due to economic disruptions[299]. - The company recorded a provision for off-balance sheet credit exposures of $1.8 million in Q1 2020, compared to $0.2 million in Q1 2019[300]. - The COVID-19 pandemic is expected to impact borrowers' ability to make payments, potentially leading to increased delinquencies and credit losses[302]. - The Company has proactively downgraded approximately $65 million in loans from pass to special mention due to anticipated financial difficulties among borrowers[279]. - The Company is utilizing economic forecasts to determine its allowance for credit losses, expecting to recognize additional provisions that may negatively impact net income[280]. - The allowance for credit losses (ACL) increased to $59.6 million at March 31, 2020, compared to $48.0 million at December 31, 2019, reflecting an increase in ACL as a percentage of total loans to 1.32%[330]. - The company recorded a provision for credit losses of $9.3 million during the three months ended March 31, 2020, reflecting anticipated deterioration due to the COVID-19 pandemic[332]. Loan Portfolio and Deferrals - Loan deferrals executed during Q1 2020 amounted to approximately $65 million, with an additional $453 million in deferrals by April 30, 2020[259]. - The Company executed loan deferrals on outstanding balances of approximately $453 million, which represents about 10% of the Company's total loan portfolio as of April 30, 2020[275]. - The Company anticipates increased requests for loan deferrals through the second quarter of 2020 due to the economic impact of COVID-19[275]. - The Hawaii loan portfolio increased by $54.3 million, or 1.4%, from December 31, 2019, primarily due to demand for residential mortgages and home equity loans[318]. - The U.S. Mainland loan portfolio increased by $8.2 million, or 1.6%, from December 31, 2019, mainly from commercial mortgage loans[319]. - The company purchased U.S. Mainland unsecured consumer loans totaling $22.3 million in the first quarter of 2020, reflecting a net discount of $0.6 million[321]. - The company purchased an auto loan portfolio totaling $30.2 million with a weighted average yield of 6.15% and an unsecured consumer loan portfolio totaling $109.9 million with a yield of 6.24% in 2019[322]. - Nonperforming assets increased to $3.6 million as of March 31, 2020, from $1.7 million at December 31, 2019, representing a 112.2% increase[326]. - Total nonaccrual loans reached $3.5 million as of March 31, 2020, up 128.1% from $1.6 million at December 31, 2019[325]. Deposits and Equity - Total deposits increased to $5.14 billion at March 31, 2020, up $16.0 million from $5.12 billion at December 31, 2019[338]. - Core deposits totaled $4.30 billion at March 31, 2020, representing a 1.1% increase from December 31, 2019[339]. - Total shareholders' equity increased to $533.8 million as of March 31, 2020, from $528.5 million at December 31, 2019, driven by net income of $8.3 million and other comprehensive income of $10.7 million[341]. - Total deposits rose to $5,136.1 million as of March 31, 2020, a slight increase of 0.3% from $5,120.0 million at December 31, 2019[342]. - Core deposits increased by 1.1% to $4,304.7 million as of March 31, 2020, compared to $4,259.3 million at December 31, 2019[342]. - The book value per share improved to $18.99 at March 31, 2020, up from $18.68 at December 31, 2019[344]. - The company declared a cash dividend of $0.23 per share on April 21, 2020, representing a 9.5% increase from the previous year's dividend of $0.21 per share[346]. - The company repurchased 206,802 shares of common stock for $4.7 million in the first quarter of 2020, with $26.6 million remaining available for repurchase under the current plan[349]. Regulatory and Capital Management - As of March 31, 2020, the leverage capital ratio was 9.5%, and the Tier 1 risk-based capital ratio was 12.3%, both above the required levels for a "well capitalized" designation[357]. - The company has opted to delay the estimate of the CECL methodology's effect on regulatory capital for two years, as allowed by recent regulatory changes[357]. - Total risk-based capital ratio stood at 13.4% as of March 31, 2020, compared to 13.6% at December 31, 2019[361]. - The company has two remaining statutory trusts with a total of $50.0 million in floating rate trust preferred securities as of March 31, 2020[352]. Economic Impact and Response - The unemployment rate in Hawaii surged to approximately 37%, significantly impacting customer ability to make loan payments[255]. - The Company temporarily closed 13 branches to ensure employee and customer safety during the COVID-19 pandemic[254]. - The Federal Reserve reduced the target federal funds rate to a range of 0% to 0.25% in response to the economic impact of COVID-19[247]. - The Company has waived non-CPB ATM fees and early withdrawal fees on time deposits to support customers during the pandemic[260]. - Liquidity may be adversely impacted by loan payment deferrals and potential significant deposit withdrawals due to COVID-19 concerns[262]. - The Company believes it has sufficient liquidity and capital to withstand an economic recession brought about by COVID-19[261]. - The Company launched the RISE2020 initiative to enhance customer experience and drive long-term growth, with a focus on digital banking and operational excellence[288]. - The Company has expanded VPN access to over 70% of its employees to ensure business continuity during the pandemic[269]. - The bank's liquidity may be negatively impacted by market conditions and industry-wide reductions in liquidity[371]. - Core deposits remain a stable and low-cost funding source, although they face competitive pressures in the market[368].